The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Rwanda's performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review allows for the disbursement of SDR 1.14 million (about US$1.8 million), which would bring total disbursements under the arrangement to SDR 5.7 million (about US$9.2 million).

In completing the review, the Board granted a waiver for the non-observance of a performance criterion on net credit to the government. The deviation from the target was temporary, resulting from delays in disbursement from a donor and reimbursements in relation to peacekeeping activities. The Board also approved Rwanda's request for a modification of performance criteria for 2008.

The three-year PRGF arrangement for Rwanda was approved by the Executive Board in June 2006 (see Press Release No. 06/121) in an amount equivalent to SDR 8.01 million (about US$12.9 million).

"Program performance in 2007 was satisfactory, and macroeconomic policy implementation was broadly on track. Growth was robust and inflation declined to single digits in the second half of the year. However, inflationary pressures have reemerged recently, spurred by increasing global fuel and food prices and higher transport costs for imports through Kenya.

"For 2008, the main challenge lies in managing a grant-financed fiscal expansion without jeopardizing macroeconomic stability. The authorities are committed to making policy adjustments, including a more gradual pace of domestic spending, should inflation accelerate.

"The projections for inflation and reserve money under the program have been increased in light of rising prices for imported food and petroleum products. The National Bank of Rwanda will need to monitor closely incipient inflationary pressures. Greater exchange rate flexibility is needed to ensure that the reserve money target is met, as well as to help buffer exogenous shocks and suppress inflation pressures. Strengthened liquidity management would improve monetary policy effectiveness.

"The planned investment in a hydroelectric power plant will alleviate an important impediment to private sector growth. The authorities intend to evaluate infrastructure projects carefully and on a case-by-case basis, to ensure their cost effectiveness and to calculate accurately their impact on overall debt sustainability. They recognize that grants and highly concessional financing for such projects will remain appropriate for some time. Future borrowing will be consistent with a prudent debt management strategy and a carefully formulated medium-term public expenditure management framework. The authorities are now elaborating a new public investment program to make planned investment projects more transparent and provide the context for dialogue with development partners.

"The authorities' ambitious structural reform agenda is geared to improving the delivery of public services and creating a vibrant private sector. The planned reforms in public financial management are encouraging, as is the strong focus placed on building capacity in the public sector. Reforms in the financial sector should stimulate private sector development and growth by improving access to long-term financing," Mr. Portugal said.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.